Friday, April 17, 2009

Are you feeling rich, yet?

The sixth consecutive week the stock market is up. The Dow Jones is up over 20% from its lows. The S&P500 is up almost 30%! I don't want to brag, but my stocks have done even better than that. ;o) (Okay, maybe I want to brag a little....)

Interestingly, although my stocks are still down overall--by thousands and thousands of dollars, no less--the total value of my stocks is actually higher now than they have been at any time since 2001. Higher today than this time last year, even! And do you know why? Because I keep adding a little bit more to it every chance I get. When stocks really started tanking back last October, I practically cleaned out every cent in cash I had and threw it in the market. In poker terminology, I went "all in."

By last February, I recklessly went in with money I didn't even have--buying about $2,000 using margin. It's not much--I figured my stocks would have to tank probably about 95% before I got a margin call, and heck, if that was the case, who cares about the two grand?

So between the additional money I put into the market, and the fact that all my stocks have done so incredibly well these last six weeks, my net worth is actually higher now than it was at any time since I was laid off from Intel in 2001. I'm pretty happy about that. =)

But I'm a little disappointed too.... I rather liked stocks being as low as they were. I keep wishing another panic would set in--even just for a month or two--so I could buy more stocks at those same February and March lows. The idea of buying stocks AFTER they've gone up 20-30% just kills me. I still think stocks are generally pretty darned cheap, and I definitely want to keep buying, but I'd be happier buying if they were 20-30% cheaper than they are today. I can't really say if I could go back six weeks that I'd do anything differently. I already invested every cent I could--including $2,000 I didn't even have! I just wish I had more time to keep buying more....

But the real reason I felt compelled to write was a statistic I read in Why You Should Love Higher Taxes--that the overall stock market had a 284% turnover in 2007. HOLY COW! Is everyone INSANE?! The average stock was held for just four MONTHS?! I own about 2000 shares in a dozen or so companies. On average, the last several years, I've sold all of about 100 of them each year. That's about 5%. Frankly, they were stupid mistakes that really didn't fit well in my portfolio. The stocks might have done perfectly well, but they just "weren't me" so I sold them. And hey, I could harvest some tax losses in the process. =)

How could anyone possibly make any money by selling all their stocks every four months, though? It boggles my mind. I pay $7 per trade with my brokerage. Perhaps not the cheapest option available, but I consider it fair. To sell all my dozen or so companies would cost me 7 x 12 = $84. To buy another dozen companies would be another $84. And to do this three times each year would cost over $500! That's some serious money! I could buy another $500 in stock with that kind of dough!

And if those stocks actually were profitable, I'd have to pay short-term capital gain taxes on them. (Last year, that wouldn't have been a problem. Year-to-date, that could be quite a bit for me!)

So I figure I'm saving $500 in trading costs per year over the "average" person. And the amount of capital gains I've paid taxes on: Zero. Not one bloody cent. I sold one stock so far this year--in a company that was losing money and I no longer had much faith in--and bought another company I felt who's future looked brighter. It was in my IRA account, so I wouldn't have to worry about paying taxes on it. Considering that I lost money on it, though, that wasn't a concern anyhow. =)

But sheeze, I find that turnover rate astounding. Between the taxes and trading costs, how does anyone think they can come out ahead?

On another note.... I recently finished reading a book called How a Second Grader Beat Wall Street. I'd never heard of the book, but was looking for something completely unrelated at Barnes and Nobel and the title grabbed my attention. Cute. =) I flipped it open to the middle of the book and read a few pages, and found myself getting sucked in. I took a nearby chair and decided to read a couple of chapters.

I lost track of time. An hour passed. Then another. Maybe another. I don't really remember.... but next thing I knew, I turned the last page, then returned the book to the shelf. Thinking, "Wow, that was really, really interesting. There's a lot of people who should read this book."

If you haven't read it, I highly recommend it! I woudln't necessarily read the whole thing right there in the aisles of Barnes and Nobel, but that's an option if you want to make use of it. I'd probably check your local library first. ;o)

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